VICI Provides Small Update on Caesars Regional Casino Master Lease Situation

The state of Caesars Entertainment’s (NASDAQ: CZR) regional master lease agreement with VICI Properties (NYSE: VICI) has been an overhang on both stocks this year with the companies remaining mostly quiet on the situation, but there may be some glimmers of hope.

Citizens Equity Research analyst Mitch Germain met with senior leadership of both Gaming and Leisure Properties (NASDAQ: GLPI) and VICI at the Global Gaming Expo (G2E) in Las Vegas earlier this week. As has been par for the course, VICI management wasn’t overly loquacious regarding the state of affairs with Caesars, but Germain notes some insight was provided, including acknowledgement from the real estate investment trust (REIT) that Caesars’ coverage of the regional casino master lease is “thin.”

The analyst reiterated a “market perform” rating on the Venetian owner, though he trimmed his price forecast to $31 from $35, but that new target still implies upside of more than 36% from current levels.

Will Caesars Acquisition Affect Regional Casino Master Lease?

Caesars shareholders recently agreed to a $17.6 billion go private offer from Tilman Fertitta’s Fertitta Entertainment Inc. (FEI), but how that deal could affect the relationship with VICI remains to be seen.

It’s widely believed that the combined Caesars/Golden Nugget (Fertitta’s casino entity) will sell some assets over the next year. At G2E, Caesars CEO Tom Reeg confirmed as much, but he added that the potential divestments likely won’t pertain to “newsworthy” properties.

That may fuel speculation that Caesars and Fertitta may look to unload some regional casinos that are struggling to generate the earnings before interest, taxes, depreciation and amortization (EBITDA) needed to cover the rent owed to VICI.

More than a dozen Caesars-operated regional casinos are under the VICI master lease, indicating there are plenty of choices to potentially sell. Several of those are in markets, such as Atlantic City, NJ, and multiple ex-Las Vegas Nevada markets, where Caesars and Golden Nugget overlap.

For GLPI, Bally’s Looms Large

Germain notes that, not surprisingly, Bally’s (NYSE: BALY) dominated the conversation with Gaming and Leisure executives. While Bally’s is contending with well-documented financing needs, its landlord appears mostly constructive.

“There is little near-term impact anticipated, according to management, as work stoppage at the Bally’s Chicago project has impacted the lodging/entertainment component; however, the casino element of the project remains ongoing, and GLPI is confident in rent collectability,” wrote the analyst.

Germain’s report didn’t include commentary on speculation that Bally’s could look to unload its operating rights to the Las Vegas Strip site previously occupied by the Tropicana. He lowered his price target on the stock to $49 from $55 while reiterating a “market perform” rating.